Sunday, April 17, 2005

The cost of regulation

According to a report in The Business today, car industry leaders are warning they face 282 separate pieces of EU legislation over the next five years, claiming that they will add £2,760-4,000 to the cost of a standard car.

This fear was expressed to a new "high level group" of government ministers, EU commissioners and motor industry chiefs who met for the first time last Monday. The group, which calls itself "Cars 21", is now to spend this year examining how Europe's carmakers can remain competitive amid increased competition from the East.

One additional problem, it seems, it that the regulation is beginning to impose conflicting objectives, opposing the laws of physics.

For example, legislation designed to protect pedestrians from low speed collisions will see the front structure of cars change dramatically; bonnets may be equipped with airbags. This, however, means cars will get heavier, which puts the regulations at odds with those governing CO2 production which are pulling cars the other way [toward lighter vehicles].

Manufacturers in the EU produce every third car in the world, and the car industry sustains 2 million jobs and, while productivity is lower than its rivals', labour costs are among the highest. Traditional plants are being abandoned in favour of cheaper plants in the East. The manufacturers thus claim that legislative pressure could have a significant impact on the survival of the European industry.

However, this does not seem logical, since imported cars will have to conform to the same standards, and suggests special pleading.

More to the point, higher prices may mean a slowdown in car sales as users elect to keep their cars longer. And, as electronic technology invades new cars, with satellite monitoring of vehicles being proposed, some owners may be reluctant altogether to buy new cars. Either way, the new regulations are bound to distort the market and add to the cost of living.